Gurcharan Das

Official blog of Gurcharan Das. He is the author of India Grows at Night: A Liberal Case for a Strong State (Penguin 2012);The Difficulty of Being Good: On the Subtle Art of Dharma (2009),India Unbound (2000),a novel,A Fine Family (1990),a book of essays The Elephant Paradigm (2002) & an anthology of plays,Three plays (2003). He writes a regular column for the Times of India and 5 Indian language papers and occasional pieces for the Wall Street Journal, Financial Times, and Time magazine.

Monday, November 28, 2016

After almost three weeks of demonetisation, there is visible pain in the lives of ordinary people, a noticeable slowdown in economic activity, and reports of job losses in many sectors. The economy may contract by as much as two percentage points over the next two quarters — a colossal loss in national wealth. However, there can be no rollback. The gains from a cleaner, whiter economy are far bigger in the long run. Here’s how Narendra Modi can save demonetisation.

1) Speed is of the essence. Don’t depend only on our own printing presses to replenish the cash; subcontract the currency presses of friendly governments whose security levels are unimpeachable. Fly in the new notes and flood the system. The priority is to restore liquidity in the market so people can get on with their lives.

2) Extend the income disclosure scheme. True, the last amnesty scheme was only a modest success, but after the stick recently wielded by Modi, a little carrot might work better now. Demonetisation has given rise to new currency brokers who are converting the old notes at 30 to 40% discount. Since government is threatening more action against black money such as scrutiny of benami land titles, people will be more inclined to convert their black to white via an amnesty scheme — say at a 50% tax rate rather than the 60% it is considering — rather than convert old black money to new black money via a broker.

Some may opt to disclose their black money as ‘current income’ and get away by legally paying around 35% tax; this too should be welcomed. Another alternative is to offer low-yielding, long-term bonds that would convert black to white; the government would gain by getting money cheaply. The purpose is to diminish the fear in the most productive groups in society that create most of the jobs. Don’t demonize them: this is not a dharmayuddha. The objective is to change old, ingrained habits for the betterment of society.

3) End harassment. Law-abiding citizens will happily pay tax if they believe they will be respectfully treated by income-tax officials. People need to be reassured that they can file returns online today; pay tax online; and get refund online. The computer decides, not the ITO, which returns are to be scrutinized. Modi needs to mount a major campaign to reassure people about this reduction in official discretion. He needs to also severely punish any tax official caught harassing a taxpayer.

4) Put black to use. Offer a significant fiscal stimulus to the economy from the notes not likely to be exchanged, black money that will disappear forever. Spending this non-inflationary money — an estimated Rs 3 lakh crore — on infrastructure and housing can create masses of jobs and mitigate some of the jobs lost in demonetisation.

5) Focus on real estate. Demonetisation will not stop the corruption that creates black money. For this you have to attack its underlying sources. In real estate, every step is mired in corruption — from buying land to getting approvals. Black money is also the result of excessive stamp duty. For this reason, Vijay Kelkar had recommended merging stamp duty into GST in his pioneering report on GST. That may be too late but we must keeping fighting for sensible taxes and clean titles in land.

6) Roll back the customs duty on gold. Smuggling of gold declined in India when import restrictions were lifted after 1991. A decent white business developed in gold and jewellery. In 2013, there was a setback when customs duty on gold was reintroduced. Cash payments became common again because smuggled gold was cheaper.

7) Reform the silly curbs on legitimate election donations to candidates. This has led to the use of black money in elections. I do not favour state funding, where my hard-earned taxes would finance candidates and family dynasties I despise. Instead we should follow the best practices in the US and Europe in funding elections.

8) Reform the bureaucracy. Black money is generated because of administrative discretion. A good place to begin reform is to implement Justice Srikrishna’s draft Indian Financial Code.

9) Do not attempt to end black money. People should not break the law but we should overlook small transgressions, just like we ignore pedestrians who cross on a red light. Cash lubricates the system and a cashless society is the road to dictatorship.

10) Don’t touch the aam aadmi’s tender. Finally, the next time you want to demonetise, flood the market first with 5,000 and 10,000-rupee notes; once the black money has moved up to these higher notes, demonetise only the Rs 5,000 and Rs 10,000 notes. Spare the aam aadmi.

Sunday, November 13, 2016

Two apparently unrelated events occured in Delhi in the past few days. In the first, Narendra Modi made a tough, risky move — one of the riskiest in his career — against the long-festering problem of black money. In the second, Arvind Kejriwal was seen floundering as he tried to cope with Delhi’s foul air. What connects the two events is the stark contrast between the decisive action in the case of black money and a sense of helplessness in response to pollution. The dissimilar behaviours of the two politicans are explained by the Theory of Public Choice, enunciated by the American economist, James Buchanan, which won him the Nobel Prize in 1986.

At some point in his political career, Modi realised that there are votes in fighting against black money. He made an election promise, and after a series of other steps, he acted last Tuesday to withdraw high-value notes from the market. It was a risky move. It would bring huge pain to the aam aadmi before it brought gains to the economy. It would disrupt trade, slow down business activity in real estate, the largest employer in the nation. It would alienate the political establishment, including his own party, diminishing their ability to fight the next election. But if Modi manages to contain these risks, he would deal a body blow to black money, tipping India towards a clean, white economy. And in the 2019 election he might even be rewarded for it.

Arvind Kejriwal has been unable to see the electoral possibilities in providing clean, healthy air. He lost an opportunity two years ago when World Health Organisation declared Delhi as the world’s most polluted city. There was panic at the time with an upsurge in respiratory complaints; tourists cancelled bookings and diplomats refused to accept postings to India. But Kejriwal frittered away that political moment. Perhaps, he thought that his core constituency of migrant poor was indifferent to pollution. Or he was daunted by the challenge. After all, there is no single pollutant in this case. Road dust, construction, waste burning, vehicle emission, diesel generators, power plants — all these factors play a role. Then there are nasty jurisdiction problems with multiple agencies to cope with. Even the Supreme Court had not succeeded. In the end, he probably concluded that it was wiser to focus his resources on priorities that had a better chance of accomplishment.

Buchanan’s concept of Public Choice throws light on Kejriwal’s dilemma. Many of us are familiar with market failures, but few know about his systematic theory of government failure. We tend to have a romantic view of public officials, believing that they act altruistically in the public interest. Public Choice teaches that politicians and civil servants are just as self-interested as you and I, and they look out primarily for themselves. While Modi and Kejriwal may feel passionately about the common good, their driving force is their own interest — their re-election to begin with.

The key is how do we channel the self-interest of politicians and officials to our desire for clean air? Generally, ministers in a vast democracy operate under the influence of vested interests that are generous in their contributions to the minister’s election campaign. A small lobbying group with a narrow focus always has this advantage over dispersed and disorganised individuals who want clean air but have no voice. How can these individuals come together and persuade their politicians that there are votes in clean air?

One doesn’t know if Modi will succeed in fighting black money. Demonetisation is only one step in a prolonged campaign. But the lesson for those who want clean air is to bring public pressure on politicians so that the subject gets on the national agenda. It is not Delhi’s problem alone, and it not fair to dump it all on Kejriwal. Many Indian cities face this problem. Narendra Modi will have to get involved. It will also not be easy to raise consciousness because of political apathy.

The air improved slightly last week and the subject quickly disappeared from the media and the public imagination. However, the winter is upon us and Delhi’s air will soon become foul, and people will again begin to scream. Success will depend on institutionalising individual screams into a collective scream in order to awaken the political class to the possibility of votes in cleaning up the air.

Monday, October 31, 2016

Indians have a saying that captures the tendency of family businesses to decline over generations: “The life of a business house is 60 years.” This phenomenon was portrayed by the German writer Thomas Mann in Buddenbrooks, his novel about a wealthy merchant family in the city of Lübeck whose business disintegrates as the children lose an appetite for making money. Until now, the 148-year-old Tata Group has defied this rule. But today India’s largest conglomerate is caught in an existential crisis — its own Buddenbrooks moment — that began last week with the dismissal of Cyrus Mistry, its chairman, and the temporary return of Ratan Tata, his predecessor.

Mr Mistry called his sacking illegal and said he had become a “lame duck” chairman, while Mr Tata called his words “unforgivable”. I was once a member of a Tata company board and was shocked at this unseemly row. But the significance of the episode goes beyond the Tatas.

It is a cautionary tale for India’s business community as a whole, which is struggling to separate ownership and management, families’ interests from businesses’.

The appointment of Mr Mistry in 2012 was always risky. After a global search for his successor in 2011-12, Mr Tata settled on the son of the largest shareholder. Mr Mistry is personable and competent but his experience was limited to managing a second-tier construction company. Suddenly, he was being asked to turn around a complex conglomerate.

This is a cautionary tale for groups struggling to separate ownership and management.

I recall feeling somewhat uneasy about his appointment at the time. Why was the company compromising by choosing the scion of a family that had been its second-largest shareholder since the 1930s? Surely there was someone else somewhere in the world capable of leading the house of Tata?

Yet there has been no satisfactory explanation for Mr Mistry’s dismissal. He inherited a lot of problems. Tata Consultancy Services was delivering the bulk of the group’s profits, while too many of its subsidiaries were underperforming.

By the time of his departure, Mr Mistry seemed to be doing a reasonable job. He had managed to reduce debt on the balance sheet. Part of Tata Steel’s British business had been sold, while the Indian operations were delivering strong profit growth.

The domestic business of Tata Motors had created a car capable of winning market share, while the overseas Jaguar Land Rover was earning good profits. The only blemish on Tata’s reputation has been a legal tussle involving a $1.2bn payout to Japan’s NTT DoCoMo after a failed buyout.

Certainly, Mr Mistry was no visionary nor did he make forays into new markets like his predecessor but, at this stage in the group’s evolution, consolidation was the right strategy. Unfortunately for him, another recent corporate succession was on people’s minds.

Infosys, the software group, seemed to have made a happier choice in 2014 when it appointed Vishal Sikka as chief executive, a man with a bold vision for the future.

After Mr Mistry was defenestrated, a headline in Dainik Bhaskar, a leading Hindi daily, proclaimed: “Tata’s dharma is wounded”. This suggested an ethical failure. If America’s key word is “liberty”, India’s is “dharma”.

In this context, dharma refers to the right and wrong ways to do business. The newspaper was referring to failures of corporate governance in India, the inability of private and state-owned companies to be properly accountable to shareholders and the refusal of too many founders to take a back seat after retirement.

Of the many lessons for Mr Tata in this episode, the main one is to focus on bringing in the person best qualified to do the job. It will not be easy. But once he has found that person, Mr Tata should bow out gracefully.

Friday, October 28, 2016

The road to sustainable markets

THE IDEA THAT an ancient Indian concept, dharma, might offer insight into the nature of the competitive market is, on the face of it, bizarre. But this is precisely what I intend to show in this essay. Dharma is a difficult word to translate into English. Duty, goodness, justice, law, and religion have something to do with it, but they all fall short. For our purposes, however, think of dharma as doing the right thing, both in private and public life. The market system depends ultimately not on laws but on the self-restraint of individuals and dharma provides that restraint. It provides people with shared norms that encourage them to transact with mutual respect and thus reinforces trust between them. Many business communities in India have a word for this crucial concept of trust—Marwaris call it ‘sakh’, for example.

At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. Dharma places limits on buyers and sellers and this allows strangers in the marketplace to trust each other. Because of a shared notion of dharma, I readily accept a cheque from you. In the same way a taxi driver takes me in as a passenger because he knows that the curbs of dharma will ensure he will get paid at the end of the journey. Thus, millions of transactions are conducted daily based on the self-control of human beings in the global economy without written contracts or judges and policemen to enforce them. Dharma acts like invisible glue between transacting persons in the marketplace, allowing them to trust each other. The same glue also holds society together, bringing a degree of coherence and predictability to our uncertain lives.

I trust the woman who sells fruit to me regularly in Khan Market near my house in Delhi. She claimed one day that she had received exceptionally good man goes but they were expensive because of their higher quality. I reluctantly bought the mangoes, but unfortunately they turned out to be bad. I promptly punished her by shifting my allegiance to her competitor. Not only did she lose my custom, but I also told half a dozen friends and neighbours. All of us shared similar stories about her behaviour. As word-of-mouth spread, she came to be known as a person of low dharma, and lost market share. There is thus an underlying dharma that guides the marketplace, and it punished the fruit seller without the need for judges and policemen.

Every purchase manager has the temptation to squeeze his supplier. If he does not treat the supplier with dharma and give him a fair price, his own company will suffer when the supplier delivers sub-standard components. On the other hand, the market rewards good behaviour on the part of a company that treats its employees well. The best will want to join such a firm, and with the influx of talent, it will be rewarded with high performance and market share. A person or a firm that consistently behaves with dharma is rewarded in the end with a good reputation. Smart businessmen know this and work incessantly to improve their reputation. Thus, markets are not only efficient but they also reinforce good behaviour, thanks to dharma.

DHARMA DERIVES FROM the Sanskrit root dhr, meaning to ‘sustain’ or ‘hold up’ (somewhat in the way that foundations support a building). Dharma provides the underlying rules or norms of society, creating obligations between citizens and between citizens and rulers, and it thus brings a degree of coherence to our everyday life. It is the moral law that provides the foundation for the good life of an individual and of a good society.

Because dharma is pragmatic (unlike, for example, the absolute morality of the Judeo-Christian tradition), it is eminently suited to comprehend exchanges in the marketplace and public policy. Dharma’s approach is not to seek moral perfection, and its world of moral haziness is thus far closer to our experience as ordinary human beings. It is also suited far better for public policy in a democracy than the narrow and rigid moral positions in a theocracy or a dictatorship, which are based on fundamentalist notions.

The word ‘dharma’ is employed 64 times in the first text on the Indian Subcontinent, the Rig Veda, created around 1500 BCE, and its meaning has evolved though history. (I have described this historical evolution at the end of my book, The Difficulty of Being: On the Subtle Art of Dharma). Although the Sanskrit word ‘dharma’ appears at times to be synonymous with the English word ‘moral’—and up to a point, it is—dharma, in fact, carries many connotations that go beyond the English word. It contains suggestions of ‘cosmic harmony’ (a bit like maat in ancient Egypt), ‘trust’, ‘legality’, ‘balance‘, restraint’, ‘justice’ and ‘religious merit’. Some of these can help in deepening our understanding of the market. From its original Vedic root of ‘holding up’, it carries connotations of balance, harmony, and moral well-being, both for an individual and society. Hence, it was elevated to one of the four goals of the good life in classical India, along with artha, ‘material well-being’, kama, ‘sexual well being’, and moksha, ‘spiritual well-being.’

When individuals behave with dharma, they create trust in society and harmony in the cosmic order. ‘The God Indra then showers sweet rain and the seasons follow; harvests are bountiful, and the people thrive.’ (Mahabharata 1.58.14). The ideal that continues to exist in the Indian imagination is that of a ruler guided by dharma. Hence, the outraged reaction of the Indian people to corruption scandals during the Congress-led UPA-II Government, which was captured in a Dainik Bhaskar headline thus: ‘Dharma has been wounded.’

However, dharma has its limits because every society has its crooks. Therefore, Bhishma instructs Yudhishthira in the Mahabharata about the importance of danda, the ‘rod’ of the state to punish those of low dharma. Even the most peaceful, dharmic ruler must then exercise force. The epic says that when dharma is low in a society, the dependence on danda or intrusive regulation rises. A society where dharma is weak suffers from pervasive corruption of public officials and ineffective public administration.

THAT INDIA IS rising in the 21st century on the back of free markets is not surprising. It has a long tradition of encouraging and promoting markets. Since ancient times, the merchant was a respected member of society, one of the three ‘twice-born’ higher varna in the social hierarchy. Merchants and bazaars emerged early as centres of exchange in the towns of the Indus Valley (3300–1500 BCE), possibly even earlier in the Neolithic age, soon after Indians first engaged in agriculture and there was a surplus.

India historically had a weak state but a strong society, unlike China, which had a strong state and a weak society. India’s history is a story of warring kingdoms, unlike China’s, which is a history of empires. Early on dharma placed limits on the power of Indian rulers. In China, the emperor was the source and interpreter of the law; in India, dharma (meaning ‘law’ in this context) existed prior to the king, and the king was expected to ‘uphold dharma for the benefit of the people’; the Brahmin, not the raja, was the interpreter of dharma; thus a ‘liberal’ division of powers was created early in Indian history which placed a check on state power, and weakened the power of the state. Oppression did not generally come from the state, but from society (particularly from Brahmins). And the answer to that oppression was a guru, like the Buddha, who came along periodically to deliver the people from oppression.

Because the state was weak, regulation in India was generally light. An exception to this was the heavily regulated state in the political economy text, the Arthashastra. The king’s dharma, we are told in the Mahabharata, was to nurture the productive forces in society, including the market: ‘The king, O Bharata, should always act in such a way towards Vaishyas (merchants and farmers) so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them’ (Mahabharata, XII.87). Practical advice, indeed; otherwise, the epic goes on to suggest, Vaishyas will shift to neighbouring kingdoms and the king will lose his tax base. ‘Shat bhaga’ or one-sixth was considered by the dharma texts, as well as by the Arthashastra to be the fair share of the king for maintaining peace and infrastructure. Thus, 15 per cent was considered the optimal tax rate, which roughly is the tax rate of Singapore today. Mughal rulers were castigated for charging 40 per cent, an excessive tax in people’s eyes.

There was purpose to economic activity and the ancients were acutely aware of it when they posited artha as one of the goals of life. They believed that the pursuit of money was proper because it created the material conditions for the pursuit of other goals. But dharma, ‘moral well-being’, was generally considered a higher goal than artha. This meant that there was a right and a wrong way to pursue wealth and the constraints of dharma were meant to guide artha. Premchand Roychand, the cotton king of Bombay, is one of many businessmen who internalised this message. He made his fortune by stepping in to supply long-staple cotton to the mills of Lancashire when the American Civil War broke out in the 1860s and their supply of raw cotton was cut off. When the war was over, Bombay’s cotton market crashed, and with it came down the Bank of Bombay that Roychand controlled. Roychand was bankrupt, but he proudly recounted many years later that he slowly paid back the loans of his depositors and investors, beginning with widows—a true act of dharma.

The merchant has generally been well regarded in Indian history. He is often the hero in the animal and human stories of the Panchatantra, Hitopadesha and the Kathasaritsagara, which travelled to the West via the Arabs, some of them becoming part of Aesop’s Fables. In them, the merchant is sometimes a figure of sympathy and other times of fun. The Mahabharata speaks of Tuladhara, a respected trader of spices and juices in Varanasi, who instructs surprisingly an arrogant, high Brahmin on dharma and how to live. Speaking modestly, he compares his life as a merchant to a ‘twig borne along in a stream that randomly joins up with some other pieces of wood, and from here and there, with straw, wood and refuse, from time to time’ (XII.253.35 ff). The analogy of the twig brings to mind the picture of a real-life trader in a competitive market who has multiple suppliers and buyers; he does not fix the price—the market determines the price; his gains and losses are not entirely under his control but depend on the impersonal forces of the market.

There is an irony here—a petty trader is teaching a high-caste Brahmin how to live. The worldly merchant, who presumably ought to covet wealth, is being held up as a model of behaviour for a forest dwelling ascetic. Tuladhara is happy to go with the flow like a twig, suggesting in this case that a person who is distrustful of worldly achievement is less likely to step on the toes of others and be less violent.

OUR ANCIENTS BELIEVED that the pursuit of artha was meant to make the world a better place. The word, laabh, ‘profit’, was not a dirty word. In one of the dharma texts dealing with commercial law, Vijnaneshbara says, ‘Business is buying and selling for the sake of laabh. According to Naradashastra, ‘Profit is the desired and legitimate end of business’ (8.11). Contrast this with Jawaharlal Nehru’s statement to JRD Tata over lunch at Teen Murti in the mid 1950s. JRD had gently reminded Nehru that the public sector was also expected to make a profit. Nehru replied: “Jeh, profit is a dirty word. Let’s not spoil our lunch by thinking about it.” The point is that the socialist period between 1950 and was an aberration in Indian history. Socialists tended to confuse laabh (profit) and lobh (greed) in believing that only greed motivates business. Adam Smith clarified the distinction when he distinguished legitimate ‘self-interest’ and illegitimate ‘selfishness’. When it rains, I carry an umbrella. It is a self-interested act—nothing selfish about it. Lobh often harms another and thus it is selfish—example, a banker who bilks a debtor by keeping a loan outstanding.

The reforms after 1991 have been trying to recapture the old social contract of our society. They are grounded in the belief that artha makes a better world. Most thoughtful persons no longer believe in state ownership of the means of production and generally support the free market. They believe that the purpose of business is to lead society from poverty to prosperity. The first four decades after Independence is increasingly remembered as a dark period of India’s economic history, often labelled as ‘license, permit, inspector raj’ after the coinage of C Rajagopalchari. People increasingly think that India needs markets to bring prosperity, but they also understand that markets need to be embedded in institutional structures that make both the market and the state genuinely democratic and accountable.

It is a work in progress, however. Too many Indians still think that reforms make the rich richer and the poor poorer. They still confuse being ‘pro-market’ with being ‘pro-business’. They still conflate capitalism with ‘crony capitalism’. Hence, India continues to reform by stealth. The fault lies mainly with the reformers. No one has bothered to sell the market system. (Margaret Thatcher used to say that she spent only 20 per cent of her time doing the reforms and 80 per cent selling them.) No one has explained to Indians that a competitive market lowers costs and prices and improves the quality of products, and this tends to help everyone, not only the rich; in a reformed, competitive economy, business persons do not get special favours—that happens in socialist economies where the government retains the power to give out licences and permits. Yes, the market system has a tendency towards inequality, but at this stage in India’s development, Indians should be concerned more with opportunity than inequality. The market system combined with an outstanding education and health system will do more to create opportunities than state ownership of production.

SOME NATIONS SEEM to possess a code word which, like a key, unlocks the secrets of the country. That word is ‘liberty’ in America’s case; égalité, ‘equality’, in the case of France; for India, it is ‘dharma’. Some of the best and the worst deeds in these nations can only be understood when seen through the lens of its code word. (Example: the gun lobby defends itself in the name of liberty in the US; the ‘35 hour work’ law lobby defends itself in the name of equality in France; Hindu conservatives still justify caste inequality on the basis of ‘swa-dharma’.)

Just as America’s founding fathers were obsessed with liberty, so were many of India’s founders attached to dharma, so much so that they placed the dharmachakra, ‘the wheel of dharma’ in the centre of the nation’s flag, and the great scholar PV Kane referred to the Constitution as a ‘dharma text’. For these men and women, nation building was a profoundly moral project. The ideal that continues to exist in the Indian imagination is that of a ruler guided by dharma. The rage against the corruption scandals during the UPA-II’s tenure related to the wounding of dharma. The English-speaking elite in India has, however, forgotten the nation’s code word. Mahatma Gandhi was the last person who tried to sell the Enlightenment ideals of our Constitution—liberty and equality—in the language of sadharana dharma. Unfortunately, Gandhi died just after Independence and Nehru was too much of a Westernised liberal to connect with the people. Hence, the nation has been slow to internalise the rule of law and there is pervasive corruption. To sell the Constitution as a ‘dharma text’ remains an unfinished project. Only when the Constitution’s ideals are transformed into ‘habits of the heart’ (in the words of a wise Frenchman, Alexis de Tocqueville, who wrote the best book on democracy) will governance truly improve.

Most people think that markets are efficient but not moral. The market is neither moral nor immoral. Only human beings are. I have tried to show that there is an underlying foundation of dharma that supports both the market system and democracy. The market constitutes a school of dharma that provides the opportunity and incentive for people to cooperate with one another for the sake of mutual gain. While the market does impose its own socialising discipline to some degree, the larger theme of this essay is that dharma does not simply emerge spontaneously once the state retreats. The ability to cooperate socially is dependent on prior habits, traditions, and norms. Hence, a successful market economy, like a successful democracy, is dependent on dharma, understood as the glue of trust between people. If dharma is abundant, then both markets and democratic politics will thrive, and the market can in fact play a role as a school of dharma that reinforces both markets and the state.

Saturday, October 08, 2016

The terrorist killing of sleeping soldiers at Uri on September 18 revolted me. It reminded me of Ashvatthama’s night-time massacre of the sleeping Pandava armies, which turned the mood of the Mahabharata from heroic triumphalism to dark, stoic resignation. Soldiers are ready to give their lives in battle but they don’t expect to die while asleep in peacetime. For ten days I felt uneasy and angry. On September 29, India retaliated with surgical strikes against terrorist camps across the border in Pakistan-occupied Kashmir. With that I calmed down, feeling somehow that justice had been done and the nation’s honour had been restored. I am now convinced that India’s national interest was also furthered by the surgical strikes.

As I think back to my feelings during those intervening ten days, I realize that I was wrong in being guided by emotions of revenge, honour, and ‘justice’. Revenge is a sort of wild justice that runs in the human heart. If a good person suffers, then the bad one must suffer even more — this idea is embedded in our psyche. Consciously one denies it, proclaiming, ‘I’m not that sort of person.’ Yet unconsciously one applauds when a villain gets his due. We love happy endings in movies and novels for this reason. Revenge fulfils a legitimate human need, bringing profound moral equilibrium to our hearts.

But nations cannot afford to act like flawed human beings. Hence, political thinkers, beginning with Machiavelli, and strategists like Metternich in the 19th century, formulated theories of national interest. They argued that if nations were to act according to cold-blooded calculations of their own interest, adversaries could predict their reactions, and this would lead to a more stable, peaceful world. I learned this lesson as an undergraduate in college from Henry Kissinger, the keenest modern proponent of national interest theory.

Prime Minister Modi appears to act instinctively like a pupil of Machiavelli and Metternich. In an inspiring speech at Kozhikode, he presented a fine formulation of India’s national interest. He said that India’s interest lay in creating jobs, wiping out poverty and illiteracy. He told the people of Pakistan, “Let’s see who wins…who is able to defeat poverty and illiteracy first, Pakistan or India.” He offered a vision of the subcontinent as a developed, prosperous society. Considerations of national honour and izzat, he suggested, were against the national interest of both nations.

The September 29 surgical strikes have, indeed, furthered India’s national interest. They have smashed the conventional wisdom that crossing the line of control (LoC) would inevitably escalate into war, eventually a nuclear war. Pakistan has promoted this myth. India has bought it wholesale; hence, it becomes paralysed after each terrorist attack. Even after the terrible Mumbai attack in 2008, India responded only by cancelling talks, and this emboldened Pakistan to carry out more terror attacks. The surgical strikes across the LoC have given a different signal — there will be heavy costs to future terrorism.

By denying the surgical strikes, Pakistan, in effect, behaved rationally and de-escalated the conflict. If it had retaliated it would have led to a war.

India helped it by not making the videos public, letting the Pakistani public believe its government’s version, and reducing pressure on its leadership to escalate. This has broken a second myth — of an irrational Pakistani leadership itching for war. Modi’s other moves, prior to the surgical strikes — a rethink on the use of Indus waters, Most Favoured Nation trading status, and a Saarc without Pakistan — have all added to a sense of unease in a complacent Pakistan leadership. It has reinforced in Pakistani minds that they are dealing with a different India, which may not succumb to nuclear blackmail in the future.

This is not to say that Pakistan will not respond. It will and soon. But its response will be calibrated and rational — not mad escalation, as we once believed. Pakistan is a military state whose narrative of humiliation and hatred fuels its identity. It will always be tempted by bloodlust, revenge and national honour. India, however, must never stoop to its level. It must always choose national interest over national honour. This will not be easy because revenge and honour fulfil a legitimate human need, bringing profound moral equilibrium to our hearts. But India has no choice because it needs peace to fulfil its manifest destiny.

About Me

Gurcharan Das has recently published a new book, India Grows at Night: A liberal case for a strong state (Penguin 2012). He is also general editor for a 15 volume series, The Story of Indian Business (Penguin) of which three volumes have already appeared.
He is the author of The Difficulty of Being Good: On the subtle art of dharma (Penguin 2009) which interrogates the epic, Mahabharata, in order to answer the question, ‘why be good?’ His international bestseller, India Unbound, is a narrative account of India from Independence to the global information age, and has been published in 17 languages and filmed by BBC. He writes regular column for several news papers and periodic guest columns for the Wall Street Journal, Financial Times, Foreign Affairs, and Newsweek. Gurcharan Das graduated with honors from Harvard University in Philosophy, Politics and Sanskrit. He later attended Harvard Business School. He was CEO of Procter & Gamble India and later Managing Director, Procter & Gamble Worldwide (Strategic Planning). In 1995, he took early retirement to become a full time writer.
Visit http://gurcharandas.org for his complete work and profile.